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The Macroeconomics of Labor and Credit Market Imperfections

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Author Info
Wasmer, Etienne () (ECARES-ULB,CEPR and IZA, Bonn)
Weil, Philippe (ECARES-ULB,CEPR and NBER)

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Abstract

Labor market frictions are not the only possible factor responsible for high unemployment. Credit market imperfections, driven by microeconomic frictions and impacted upon by macroeconomic factors such as monetary policy, could also be to blame. This paper shows that labor and credit market imperfections interact in a complementary way - which may explain why European and US unemployment differ so much when labor markets have become more similar at the margin in Europe and the US. To develop this idea, we build a search model that treats credit and labor market imperfections in a symmetrical way. We introduce specificity in credit relationships, and assume that credit to potential entrepreneurs is rationed due to endogenous search frictions, in the spirit of Diamond (1990). These imperfections mirror the job search frictions that we introduce, à la Mortensen- Pissarides (1994), in the labor market.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 179.

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Length: 48 pages
Date of creation: Aug 2000
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Handle: RePEc:iza:izadps:dp179

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Related research
Keywords: Credit and search frictions; unemployment; monetary policy;

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Find related papers by JEL classification:
J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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